It's Hershey! For several weeks now (read our Weekly Chronicles The Agricultural Raw Materials Chronicle as of November 19, 2020), we have seen cocoa prices soar on the December deadline on the New York Stock Exchange. In question, frantic purchases of cocoa contract in December and it is Hershey who would be at the origin of this squeeze, indicated Bloomberg. It should be remembered that on these futures markets, at maturity, the holder of the contracts can either roll them over to new contracts expiring later, or physically take delivery of the cocoa that is in the certified warehouses of the futures market, 'ICE.

We're tearing up the filierized cocoa

For several weeks, we had seen the flight of the premium on this December contract, indicating significant purchases on this deadline. In fact, by buying “subsidiary” cocoa, i.e. stored in ICE-certified warehouses, the buyer of the beans avoids paying the $400 living income differential (LID) imposed by Côte d'Ivoire and Ghana on their cocoa that has been leaving the country since October 1, the start of the 2020/21 campaign. Of course, there are other cocoa-producing countries in the world than Côte d'Ivoire and Ghana, but the two leaders still represent 62% of world production and their quality of beans makes them the basis of the vast majority. of global chocolate making by agro-industrialists.

In other words, in order to obtain Ivorian or Ghanaian cocoa without paying the $400 premium per ton, the American confectionery giant Hershey -and others- is buying cocoa contracts on the expiry date. December on the New York futures market. And that's what made the differential soar: the contracts for December – and therefore the spot contracts – were more than $250 higher than the March maturities. Between November 13 and 16, they jumped 13.4% (read our Chronicle of last Friday). “The purchases are so massive that Hershey has been granted special stock market clearance,” reports Bloomberg. And when the December deadline expired on Friday, the chained purchases focused on the March deadline, causing it to soar in turn: on yesterday alone, the March contract gained 2.3% to $ 2,774 per tonne, its highest price since February. The squeeze is there...

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Source: Reuters

Hershey fights back

Deliveries on the futures market reached 30,000 tonnes (t) either in normal deliveries from certified warehouses or through private negotiations between buyers and sellers. And this, under the nose of Abidjan and Accra and the differential of $ 400…

Hershey defends himself from any manipulation, pointing out that “These calculations and assumptions on volumes are speculative and are not exact. Cocoa on the New York Stock Exchange is older and predates the implementation of the living income differential. Also, most of the cocoa on the New York Stock Exchange is not West African cocoa. As we have said for a long time, we buy from many origins all over the world,” a Hershey spokesperson told Reuters.

But what about afterwards? Côte d'Ivoire and Ghana are, of course, omnipresent with their 62% of the world's supply, but there is still 38% left.... “What is the next move in the chocolate war? asks Judy Ganes of Ganes Consulting in the United States, reports ZeroHedge.com/ABC Media. “There is a lot of other cocoa available on the market. Buyers can use the Ivory Coast as a residual source, draining the other cheaper cocoa before. »

It is therefore Côte d'Ivoire and Ghana that would find themselves in a vulnerable position because on the one hand, cocoa is abundant in this campaign, on the other hand, mainly due to the Covid, the world demand for chocolate is decreasing. How much longer will Abidjan and Accra be able to hold out before resigning themselves and lowering the differential by $400? Or would there be a cocoa cartel, an OPEC of the bean, but without the OPEC flaw, that is to say, which would really bring together all the cocoa producing countries. It's almost Santa Claus time...